Dollar slides vs pound as Britain prepares for Conservative-led government

Wednesday 12th May 2010

The New Zealand dollar slid 1.4% against the pound after Gordon Brown stepped down as Prime Minister, and paved the way for a Conservative-led government for the world’s sixth largest economy.

The pound gained 1.4% against the greenback as David Cameron was announced as the new British prime minister, though no details have been released about his governing arrangement with the Liberal Democrat Party. Better than expected industrial and manufacturing data for March also stoked optimism about the strength of the UK recovery.

Investors’ appetite for higher yields was muted as markets responded cautiously to the European Commission’s 750 billion euro stability package announced yesterday, and stocks on Wall Street and in Europe were mixed.

“The pound had a good bounce on less political uncertainty with the announcement looking likely for a Conservative-Liberal Democrat government,” said Imre Speizer, markets strategist at Westpac Banking Corp.

“It’s a short-term bounce, and in the long-term term, I don’t like it (the pound), but I like the euro less.”

The kiwi dropped to 47.92 pence from 48.60 pence yesterday, and fell to 56.50 euro cents from 56.65 cents. It declined to 71.66 US cents from 71.95 cents yesterday, and decreased to 68.17 on the trade-weighted index of major trading partners’ currencies from 68.38. It edged down to 79.93 Australian cents from 80.01 cents yesterday, and was little changed at 66.44 yen from 66.43 yen.

Speizer said the currency may trade between 71.50 US cents and 72.40 cents today, as the concerns about Europe’s sovereign debt issues linger.

“Calling the kiwi is very hard at the moment, because you’re not calling the kiwi, you’re calling the euro,” Speizer said. “If I was calling the kiwi on its own I’d have no hesitation in maintaining my bullish kiwi call with most of the factors all positive for it, except for global risk sentiment.”

Chinese data yesterday showed consumer spending and manufacturing were still strong in the world’s third-largest economy, though markets are beginning to get concerned that inflation fears may cause policymakers to start cooling the economy.

Businesswire.co.nz

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